Updated October 21, 2023
Mike Zaccardi, CFA, CMT
“An object at rest tends to stay at rest…”
When Sir Isaac Newton described his first law of motion all the way back in 1687, he was talking about physical things: For example, a rock at the top of a hill. Without a push to get the rock moving, it will sit idle forever. But given a push, that rock can roll all the way down the hill—and keep going, until it either hits an obstacle or until friction slows it down.
The same concept is true for people who want to begin saving and investing. Wanting to start isn’t enough to make anything happen. You can be full of good financial intentions and desire; if you never take the first step, you won’t ever start the journey toward your goals.
To get over the inertia that’s holding you back, you need to give yourself that push.
Take the first step by opening an investment account and making your first deposit. Regardless of the platform you use, in most cases it’ll take less than 20 minutes to have yourself up and running.
Once you’ve taken that first step, all of the sequential steps become easier—especially if you automate your saving and investing.
The less you need to think about transferring money into your account and choosing which investments you’re going to buy, the easier it will be to stay on track and build habits that will ultimately enable you to create wealth.
With this in mind, below is a look at three different ways that you can automate your saving and investing.
1. Set up a recurring investment.
A recurring investment is exactly what it sounds like: An investment that is made on a recurring (or repeating) basis.
When you set up a recurring investment, you’re buying the same assets repeatedly over time, on a regular schedule—regardless of price movements. This means that recurring investments are a great way to practice dollar-cost averaging, an investment strategy that helps to even out your average purchase price over time and ultimately reduce volatility.
To set up a recurring investment, all you need to do is:
Determine how much money you have in your budget to invest on an ongoing basis
Choose an investment frequency (usually daily, weekly, or monthly)
Select an investment—ideally, a well-diversified portfolio
Turn it on, and forget about it
Recurring investments are particularly helpful if you have a stable income and predictable expenses, as this makes it easier to determine how much money is available in your budget on a repeating basis.
2. Save money automatically while you spend.
At the end of the day, some of us are more inclined to be savers and some of us are more inclined to be spenders—and that’s okay.
Despite what some financial gurus will tell you, there’s absolutely nothing wrong with spending money on the things that you love and that bring joy to your life. You can have your avocado toast and still work toward financial freedom; the secret is leveraging the right tools for your particular money mindset.
Roundups are one such tool that can be particularly helpful for spenders who want to remove friction and get in the habit of investing.
In short, round-ups work like this:
You connect your debit card or credit card to Allio and enable round-ups
Whenever you make a purchase using the card, we will “round up” your purchase price to the next $5 increment
We will use the extra money that is “rounded up” to buy investment assets in your portfolio, according to your existing asset allocation profile
As an example, imagine that you were to buy a cup of coffee for $3.64 using a debit card. Allio would round that purchase up to $5 and use the $1.36 difference to invest in your existing portfolio.
While $1.36 might not seem like much, if you were to invest an additional $1.36 every day, at the end of one year, you would have added $496 to your portfolio, before factoring in any growth. That’s not a bad start.
Round-ups offer the benefits of making regular periodic investments without the hassles of having to manually transfer money. As a result, round-ups have helped to make the act of investing virtually effortless.
3. Pay yourself first when you have extra income.
Have you ever found yourself with a surprise infusion of cash—for example, a bonus check from work, a generous gift from family, or maybe even a lottery win? When this happens, it can be really tempting to spend all of the money treating yourself. After all, why not have a little fun?
The truth is, those little windfalls can make a big difference in your march toward financial independence, because they can help supercharge your efforts.
The next time you find yourself with extra cash, consider automatically moving at least a portion of it over into your investment account in the form of a lump-sum investment. That way, you can still treat yourself while at the same time also making progress toward your financial goals.
Small Actions Add Up to Big Results
The secret to investing over the long term is that you don’t need to invest a lot of money all at once in order to reach your end goals. Over time, even seemingly small investments can grow into significant sums.
As just one example, imagine a 25 year old who sets up a recurring investment of $50 each month until he retires at age 67. If he earns an average annual return of 6% during that time, he’d end up with a nest egg worth more than $113,500. If he were able to invest $500 each month—just $6,000 a year—he’d be a millionaire.
Small actions over time add up to big results. As the Tao Te Ching says, “A journey of a thousand miles begins with a single step.” All you need to do is take that first step.
Allio is here to help you take that step. Our clients can set up recurring investments to invest on a regular schedule, turn on round-ups and invest every time they make a purchase, or take advantage of one-time lump sum investments whenever they have extra cash in their budgets.
Whether you’re seeking an expert team to manage your money or looking to build your own portfolios with the best financial technology available, Allio can help. Head to the app store and download Allio today!
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